Yes, banking is big – but it isn’t all banks. While Liechtenstein is known for its vibrant banking sector, high-tech manufacturing and dedication to craftsmanship has seen venerable businesses thrive as nimble global competitors.
Photo:H.S.H. Prince Philipp von und zu Liechtenstein (left) and H.S.H. Prince Max von und zu Liechtenstein (right), Chairman and CEO of LGT respectively.
Liechtenstein is well known for punching above its weight in the global financial markets. But unlike other microstates and metropolitans which tend to specialise in the financial sector, the Principality has strengths in high precision manufacturing and even a thriving beverage sector – a veritable Renaissance Principality of industry.
Transparent politics make for a stable business environment. Dr Aurelia Frick, Minister for Foreign Affairs, Education and Culture of the Government of the Principality of Liechtenstein who is also a legal expert, explains the creation of a business-friendly and internationally recognised tax regime.
“In 2010, Liechtenstein comprehensively overhauled its 1923/1961 Tax Act. A flat tax of 12.5 percent was introduced and the special tax regimes for holding, as well as domiciliary companies, were abolished. The straightforward approach and simple application of a reasonable flat tax combined with a high degree of political continuity, solid economic policies and a financially strong public sector make Liechtenstein an interesting business location,” Dr Frick says.
“With the so called Liechtenstein Declaration of March 2009, Liechtenstein committed itself to implementing the global standards of transparency and exchange of information in tax matters as developed by the OECD. Since then, Liechtenstein has concluded OECD compliant tax agreements (DTAs and TIEAs) with more than 30 countries and jurisdictions, and is further expanding its treaty network. Liechtenstein is conducting these negotiations in a comprehensive approach that pays due regard to the need for a level-playing field and the principle of equal treatment and non-discrimination. This is, without any doubt, a crucial element especially for smaller jurisdictions,” Dr Frick adds.
Meanwhile, the world is also turning to Liechtenstein for its exceptional financial services. In the country, the sector is governed by the Financial Market Authority. Finance generates approximately 30 per cent of GDP. The national flag-bearer of the sector is LGT, owned by the Princely Family. It provides private banking and asset management services and has more than 2,000 employees at more than 20 locations in Europe, Asia, the Americas, Australia and the Middle East.
Dr Henri Leimer, Honorary Consul of the Principality of Liechtenstein in the HKSAR and CEO of LGT Private Banking in Asia.
In Asia, the firm is based in Hong Kong and Singapore with booking platforms in both cities. LGT has flourished in the region, bringing the same attention to detail and investment philosophy that has made it successful in Europe.
“It’s a myth that Asian and European Private Banking are very different. It’s not possible to classify clients by their ethnicity or geographical location – rather, people are attracted to LGT because we share similar values. The clients that tend to be attracted to us are conservative, long term investors. We think in terms of generations, not weeks or months, and our loyal client base reflects this,” says Dr Henri Leimer, CEO of LGT Private Banking in Asia and Chairman of the LGT Executive Board for the region.
What makes the nation’s economic achievement even more impressive is the fact that the financial sector is not even the main driver behind Liechtenstein’s economic development. Modernisation began when the first industry, ceramics production, was established in 1836. Since then, Liechtenstein has, contrary to outside stereotyping, developed a dynamic high technology manufacturing sector, not unlike its German speaking neighbours. This is not a recent development. The brilliance of Liechtensteiners helped man to reach the Moon. As pioneers in vacuum technology, scientists from Liechtenstein had helped NASA to execute the Apollo programmes in the 1960’s.
In another example, the construction tools manufacturing giant Hilti Corporation has more than 20,000 employees worldwide. It was founded, and is still firmly based, in the Princely Domain. Visit any high-end construction project in the world and you will see Hilti in the hands of workmen creating future urban landmarks.
“Our economy is strongly focused on industry, manufacturing and the services sector. Liechtenstein is probably the most industrialised developed country worldwide. Industrial and manufacturing enterprises contribute 40 per cent of the GDP, a share that is unique among developed countries. Many of our companies are world leaders in their field and operate in highly specialised niche markets. Liechtenstein is, for example, the largest exporter of false teeth worldwide,” says Dr Frick. She speaks of Ivoclar Vivadent, a world leading dental company established in 1923 in Liechtenstein.
From left to right: H.S.H. Prince Constantin von und zu Liechtenstein, his wife, H.S.H. Princess Marie von und zu Liechtenstein, and H.S.H Prince Philipp von und zu Liechtenstein in the Princely Domain.
The 160 square kilometres of land not only hosts some of the world’s most prominent banks and high-end manufacturing industries, but the Princely Family also owns a winery in Vaduz and one more in Austria, under the same name Hofkellerei des Fürsten von Liechtenstein (Wine Cellars of the Princes of Liechtenstein). The Principality is also home to three additional vineyards as well as two breweries. On a per capita basis, there is a winery or brewery for every 5,286 Liechtensteiners. Hong Kong accordingly should have 1,362 combined wineries and breweries to match Liechtenstein.
The winery has a distinguished ambassador. H.S.H. Princess Marie von und zu Liechtenstein, daughter-in-law of H.S.H. Prince Hans-Adam II von und zu Liechtenstein, an accomplished and certified sommelier, visits Hong Kong from time to time for private tasting events. The Hofkellerei des Fürsten von Liechtenstein wines come from two vineyards, one in Austria and one in Liechtenstein itself. While the Austrian wines are popular and more widely distributed, the Liechtenstein grown wines are extremely rare and their distribution is only to select clients. The high price of land in Liechtenstein prevents expansion of this popular, boutique winery. Its exclusivity is guaranteed.
A comprehensive portfolio has helped the Principality to diverge and enhance its global outreach, while a strategic focus on high-end industries also fosters innovation. Its small size has been no barrier to economic diversification and wealth generation. There is a lesson here for city states and small jurisdictions seeking to maintain a diverse economic structure. There is a little magic in this fairy tale kingdom and much of it is economic.